A potential affiliation with Metro Health Corp. would give the University of Michigan Health System the role it’s long wanted in West Michigan.
U-M Health System was among the prospective suitors three years ago when Metro Health sought proposals for a strategic partnership, a process that culminated with Metro Health deciding to pursue a joint venture with Franklin, Tenn.-based Community Health Systems Inc.
When Metro Health abruptly walked away from the joint venture last August after two years of due diligence, U-M Health System indicated at the time that it remained interested in a deal. That interest recently led to renewed talks with Metro Health.
Last week, the two organizations signed a letter of intent to affiliate that initiated a period of due diligence that could take several months to complete and will include financial terms as part of the final agreement.
“U-of-M has many, many reasons to come to West Michigan,” said Mike LaPenna, a health care planning consultant in Grand Rapids and principal at The LaPenna Group Inc. He calls U-M Health System an “absolute beacon of quality.”
An affiliation with U-M Health System could bring Metro Health greater access to medical specialists, particularly in cardiac care and oncology. U-M Health System in return would gain a position in Michigan’s second-largest market, as well as a source for patient referrals for highly specialized care.
Metro Health has long wanted to elevate its heart care, a medical specialty where U-M Health System excels and could surely provide assistance, LaPenna said.
“It will be interesting to have U-of-M in town and to see if U-of-M has any kind of programming that can complement what’s going on in Grand Rapids and what’s going on at Metro,” he said. “It will be truly interesting if U-of-M brings over really powerful clinical programs and begins to populate the Metro hallways with some of their physicians and programming.”
‘GOOD FOR THIS MARKET’
West Michigan offers U-M Health System access to a much larger clinical base than its home market, said Lody Zwarensteyn, the one-time president of the former Alliance for Health in Grand Rapids.
“This is a significant part of the state,” Zwarensteyn said.
In terms of effects on the market, he compares U-M Health System partnering with Metro Health to the relocation of Michigan State University’s College of Human Medicine to Grand Rapids years ago and the research partnerships that resulted from the move.
“It brings a very high level of service and a high level of recognition to this market, and it extends the ability of many patients to exercise choice — and it extends the ability of many physicians to exercise choice in terms of referral,” Zwarensteyn said. “You have the backing of two cutting-edge organizations — the MSU medical school and U-of-M medical center — which are cutting edge and they bring that cutting-edge knowledge into this market. That’s good for this market, and it has been to date with MSU. The U-of-M presence will do nothing but help continue and extend that.”
‘AN IMPORTANT FIRST STEP’
For Metro Health, signing the letter of intent ends months of speculation over who would partner with the health system following last year’s collapse of the proposed joint venture with Community Health Systems. Since then, “several health care organizations expressed interest in working with Metro, and we had meetings with many” before deciding on U-M Health System, said Ellen Bristol, Metro’s director of communications and public relations, in an email to MiBiz.
Left undefined in the announcement is exactly what form an “affiliation” with U-M Health System would take and how it would work. The letter of intent, however, “contemplates Metro Health joining the U-M Health System with full alignment of interest and goals,” according to Bristol.
“We expect that by working together, Metro Health will enhance care locally and UMHS will offer complex care through U-M facilities in Ann Arbor,” she wrote. “Both parties want to keep care local as much as possible. UMHS and Metro Health will work together to determine which additional services can be provided once the transaction is closed.”
The signing of the letter of intent is “an important first step to begin laying out the roadmap and it gives both of us a chance to better understand each other’s operations and structure and an affiliation that will maximize our success,” said Mary Masson, U-M Health System’s director of institutional positioning.
A QUESTION OF CAPITAL
The two health systems will spend the due diligence period working out the operational details of an affiliation, Masson said, adding that “we are committed to making this agreement successful.”
“It’s a good fit for us as we prepare for the future of health care in the state of Michigan,” she said. “There’s a significant number of people there and we’d like to be able to provide health care in the greater Grand Rapids area.”
When Metro Health first sought a partner in 2013, U-M Health System proposed a deal to acquire a 75-percent stake and take over 100-percent ownership after five years in exchange for a $25 million payment to the Metro Health Foundation. That’s according to documents submitted last year to the state attorney general’s office as part of a review of the proposed Metro-Community Health Systems joint venture.
Beyond additional clinical services, U-M Health System could also provide Metro Health needed capital.
“It is an affiliation that will contemplate capital commitments by U-M,” Masson said.
The Ann Arbor-based health system’s proposal three years ago included a commitment of $100 million over five years, according to a document filed with the state during the review of the CHS proposal.
HISTORY OF COLLABORATION
The three-hospital U-M Health System and Metro Health — the smallest of the three health systems based in metro Grand Rapids — have collaborated for nearly a decade on a radiation oncology center at the Metro Health Village in the suburban city of Wyoming. U-M Health System also provides pediatric cardiology and pediatric endocrinology care at Metro Health.
The two systems, with Mercy Health parent organization Trinity Health, were part of the Pennant Health collaborative, which was essentially put on hold when Metro began seeking a partner four years ago.
While aligning with U-M Health System could enable Metro Health to better compete in the market, the lead executive for one of its competitors views the potential deal as positive.
“Metro Health and UMHS have both been collaborative partners of Mercy Health in the past and we expect that to continue,” Mercy Health President and CEO Roger Spoelman said in a statement to MiBiz. “We look forward to continue working with both institutions to provide excellent, valuable health care services throughout West Michigan. Their partnership should only strengthen health care in this region of the state.”